The International Monetary Fund (IMF) has lowered Pakistan’s GDP growth forecast for the outgoing fiscal year 2024-25 to 2.6%, down from its earlier projection of 3.2% in October. The revision reflects weaker-than-expected economic activity in the first half of the fiscal year, alongside ongoing global uncertainty.

In its latest report titled “First Review under the Extended Fund Facility (EFF) Arrangement, Requests for Modification of Performance Criteria, and Request for an Arrangement under the Resilience and Sustainability Facility (RSF)”, the Fund noted that Pakistan’s economic growth remained subdued in the first half of FY2024.

Year-on-year GDP growth stood at 1.3% in Q1 and 1.7% in Q2, primarily due to reduced yields from key Kharif crops and continued sluggishness in industrial output.

Despite the downgraded growth outlook, current expenditure remains aligned with the IMF program at 18.9% of GDP for the current fiscal year.

For the upcoming fiscal year, the Fund has projected a slightly lower expenditure level of 17.8% of GDP, though it cautioned that meeting this target will depend on achieving the expected 3.6% growth rate in FY2025-26.

The organisation has updated several key economic indicators for Pakistan under its ongoing Extended Fund Facility (EFF) program, reflecting mixed signals from the country’s fiscal and external performance during the outgoing fiscal year 2024-25.

According to the Fund, the Public Sector Development Program (PSDP) was initially projected at 2.3% of GDP, but has since been revised upward to 2.5%. However, this increase appears questionable, as actual disbursements from the Planning Ministry do not support the revised figure.

Defence spending has remained consistent with the budget at 1.7% of GDP for the current fiscal year, and is projected to rise to 1.9% in FY2025-26.

On privatization, the Fund projects zero proceeds for the current year and expects no inflows over the next four years, signaling limited progress on this front.

The IMF report highlights weak performance in major crop yields and continued subdued industrial activity in the first half of the year. However, recent high-frequency indicators suggest an expected pickup in economic momentum in the second half of FY2025 and beyond.

Inflation showed signs of easing, dropping to 0.7% year-on-year in March, largely due to tight macroeconomic policies and lower food and energy prices. However, core inflation remains high at around 9%. For FY2025, inflation has been revised downward, though a temporary spike is expected in the coming months due to base effects. A sustained return to the target inflation range of 5–7% is projected for FY2026, assuming macroeconomic policies remain tight.

The current account deficit (CAD) is expected to be modest, at $0.2 billion (0.1% of GDP), supported by resilient export performance and a rebound in remittances driven by improved macroeconomic and foreign exchange stability.

Over the medium term, the CAD is projected to widen slightly to about 1% of GDP as import demand recovers. Meanwhile, gross international reserves are anticipated to strengthen gradually, aided by multilateral and bilateral financing, including $1.3 billion in disbursements under the Resilience and Sustainability Facility (RSF).

Access to external commercial borrowing is expected to stay limited during the program period. The Fund anticipates only a small issuance of Panda bonds in FY2026, with a cautious return to the Eurobond and Global Sukuk markets in FY2027, contingent on restored policy credibility.

On trade, the IMF has lowered its export projection to $31.31 billion for FY2024-25, slightly down from the programmed $31.75 billion. Imports, however, are expected to rise to $57.63 billion, up from the earlier forecast of $57.18 billion.

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However, the organisation expressed concerns over the government’s proposal to reduce tax rates for salaried individuals, sources said as virtual negotiations between Pakistan finance ministry officials and the Fund are underway.

Therefore, in March, the IMF delegation assured Finance Minister Muhammad Aurangzeb of their commitment to economic support for Pakistan. They stressed the need for immediate cost-cutting and has asked Pakistan to present a comprehensive plan to bridge the revenue shortfall in the next quarter.